26 Apr Market Update – Spring 2019
After a rough and volatile end to 2018, markets have bounced back bringing relief to us and our clients. The US stock markets are close to recovering their losses, while international markets continue to lag. This has been the case for a while, which is why we have significantly limited or avoided international stocks since last summer. We will continue this action for the foreseeable future. The US economy and corresponding companies continue to lead the world on growth and profits; two key factors for investing.
US Stock Market
Bonds have also recovered after posting losses last year. Please remember that last year stocks and bonds had negative performance. That does not happen often. The wild swings we have experienced over the last 6 months are par for the course when studying market history. Everyone must be cognizant that markets move up and down and experiencing losses is part of successful investing.
Our job is to limit losses to the best of our ability. We sold a large portion of client’s holdings in stocks last year when we saw markets dropping. This limited losses and strategically positioned us to be able to protect clients if markets continued downward. We never know exactly when markets will continue to tank or begin to recover. However, once the market regained its footing, we quickly added back the stock positions to clients’ accounts in order to take advantage of the recovering markets.
So why did markets recover at the end of December?
Many experts would assign the cause to the Federal Reserve stopping the increase of interest rates after seeing global markets take a bath. A quick reminder that the Federal Reserve was increasing rates for the last couple years as the US economy continued to motor along. Many thought the path they were on would lead to a slowing economy and declining markets as increasing interest rates have done historically. That sure seemed to be the case until they committed to stop increasing rates in December. Maybe this was the cause for the market bouncing back or maybe just coincidence. Either way it is a nice story.
We are once again at a crossroad where we believe it is prudent to reduce exposure to stocks as the market has had a historically large recovery. We are being as proactive as possible to protect account values while generating acceptable returns.